Chile: Transfer Pricing Obligations AT2024

Every year, until the last working day of June[1], taxpayers must submit to the Internal Revenue Service (SII) affidavits relating to formal obligations in Transfer Pricing.

Transfer Pricing is the price or rate agreed upon between related companies for transferring services, goods, loans, etc. The regulation in this matter allows better control in transferring benefits for tax evasion. To avoid altering prices between related companies or persons, transfer prices are used, whose fundamental principle is that the price to be fixed in transactions between related companies must be the market value (arm’s length principle). This principle has been adopted by most of the world’s economies and, in particular, by the countries that are members of the Organization for Economic Cooperation and Development (OECD), as is the case of Chile, which has established doctrine and complementary regulations.

Pricing between related companies must also be documented since the SII may adjust the transfer prices if it deems that they differ from those between independent parties.

What are the relationship rules?

  • It is necessary to know if there is any relationship to comply with the transfer pricing obligations in Chile. The regulations establish that the parties involved in a transaction are considered related when any of the following circumstances are present:
  • When there is direct or indirect participation in the management in its entirety of the entity, or the same person or persons participate directly or indirectly in the management, control, capital, profits, or income of both parties, all of them being understood to be related to each other.
  • When it is a subsidiary, affiliate, or office concerning its parent company, as well as with other permanent establishments of the same parent company, related companies of the latter, and permanent establishments of the former.
  • When the operations are carried out with territories of null or low taxation (regimes with tax preferences) for the effects of the tax regulations, except when there is an agreement to exchange relevant information for the impact of applying the tax dispositions, which is in force.
  • Regarding natural persons, when blood and/or affinity ties exist.
  • When a party carries out one or more operations with a third party that, in turn, carries out, directly or indirectly, with a related party of that party, one or more operations similar or identical to those carried out with the first party, regardless of the capacity in which such third party and the parties intervene in such operations.

What are the Transfer Pricing affidavits?

Among the statements related to Transfer Pricing that must be prepared and filed in June 2022, we can mention:

  • F1907 (Transfer Pricing)
  • F1913 (Global Tax Characterization)
  • F1950 (Master File)
  • F1951 (Local File)

To qualify for one of these obligations, we present a summary:

  

 

 

 

 

 

 

 

Scope of application

F1907 (transfer pricing transactions) F1913 (Global Tax Characterization) F1937 (Country-by-country report) F1950 (Masterfile) F1951 (Local file)
(a) Medium and large companies that have carried out non-domiciled related transactions (art. 41E) and/or transactions with tax havens (art. 41H).  

 

 

(a) Large companies or taxpayers included in the “Large Taxpayers” list.

(a) Parent or controlling entity of the multinational enterprise group (GEM in spanish) with residence in Chile, to the extent that the group’s revenues exceed EUR 750 million at the end of the consolidated financial statements. (a) Parent or controlling entity of the multinational enterprise group (GEM in spanish) with residence in Chile, to the extent that the group’s revenues exceed EUR 750 million at the end of the consolidated financial statements. (a) Large companies (that have carried out operations with related non-domiciled companies and/or tax havens).
(b) Not being a medium or large company, but have carried out operations with related non-domiciled companies (art. 41E) and/or tax havens (art. 41H) for amounts greater than CLP 500 million. (b) Entity that integrates or belongs to the GEM, with residence in Chile, and that has been designated by the GEM, for the purpose of filing the DJ “Country by Country Report”, in its country of tax residence on behalf of the GEM. (b) Entity that integrates or belongs to the GEM, with residence in Chile, and that has been designated by the GEM, for the purpose of filing the DJ “Country by Country Report”, in its country of tax residence, on behalf of the parent or controlling company. (b) Its parent or controlling company of the GEM has had to file a “Country-by-Country Report” in its country of tax residence.
(c) Have carried out non-domiciled transactions (Art. 41E) for amounts in excess of CLP 200 million

What information must we declare and file?

All information related to operations carried out with related companies abroad and/or located in territories considered as tax preference territories, such as:

  • Purchase and/or sell tangible goods (merchandise, raw materials, supplies, depreciable fixed assets, etc.).
  • Services of the line of business or operating support; leasing.
  • Transactions with intangible goods (royalties for the right to use trademarks, know-how, etc.).
  • Financial operations (loans, guarantees, letters of guarantee, centralized treasury, long-term deposits, etc.).
  • Commercial current account transactions with credit or debit balance.

It is essential to mention that the following are not considered transactions between related companies: dividends, board diets, and changes in the equity structure.

What are the penalties for non-compliance in Chile?

According to SII Circular No.31 of 2016 and numeral 6, Article 41E of the Income Tax Law, the penalties for failure to file or erroneous filing of transfer pricing informative affidavits will amount from 1 to 50 annual tax units (UTA). Such penalty varies according to the number of transactions or untimely dates.

It should be noted that the fines will not exceed 15% of the taxpayer’s equity or 5% of the adequate capital, whichever is greater.

[1] For this tax year 2024 (transactions occurred in the business year 2023), the obligations are due June 28, 2024.

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